Waiting weeks for your invoices to be paid is hard on a business. If you’re looking for a way to reduce the waiting time, and get the funds you need ASAP, consider invoice factoring. It may be the right financial move for you, depending on your situation, needs, and goals.
How Do Unpaid Invoices Hurt Your Business?
Unpaid invoices can strain your cash flow. If you must wait weeks before getting paid, you may not have enough money to keep your operations going. As a result, you pay your employees late, which can compromise morale, motivation, and even retention. With strained finances, you won’t have the chance to pursue growth opportunities. And because you don’t have enough capital, you may have a hard time investing in equipment that can help you grow your business. One solution that can help is small business factoring.
What is Small Business Factoring?
The process involves a business selling unpaid invoices to a third-party company. The third-party company is referred to as the factoring company. The invoices are sold at a discount. But it provides the business with more than enough cash—in a lump sum—to fulfill immediate business needs. The money can help you keep your business afloat. For many startups, that’s more than enough.
How Does Invoice Factoring Help Your Business?
If you’re a startup, and in need of funds, invoice factoring is an excellent option. Maybe, you made a pitch. Perhaps, you’re waiting for word from a potential investor. You know that if that pitch succeeds, you’ll have more than enough to shore up your business. You’ll have more than enough cash flow to resolve your problems. But you’re not there yet. What do you do? That’s where invoice factoring comes in handy. While you’re waiting with strained finances, factoring invoices can help you sustain your business and keep everything going.
How Does Invoice Factoring Work?
Small businesses often need to wait 40 days before they receive payments for their invoices. For many small businesses, that’s a long wait. Invoice factoring allows you to reduce the waiting time, so you can get the funds you need faster. Here’s how it works:
- You check your unpaid invoices. Does it still have 30 days or more?
- You set up an account with an invoice factoring company. Go over the rates, services, and products of the company to make sure you understand the terms and conditions.
- You send an application for invoice factoring and wait for approval.
- You submit the invoices online through a trusted platform or system. You can also do it manually, though, online submissions are more convenient.
- You choose the invoice you want to finance. Send that for review. The factoring company will check if the invoice is eligible. If it is, you can expect payment soon.
- The funds are sent to your account.
What are the Risks of Invoice Factoring?
There are several risks that come with invoice factoring. You need to make sure you understand the costs. There may be hidden fees. Also, choose a consultant or invoice factoring platform that you can trust.